Equity trading/investing is the exchange of equities (shares) between the buyer and the seller. The equity life cycle consists of the below stages involved in the equity (financial) instrument.

• Issuance
• Pre-Trading/Pre-Investing
• Trading/Investing
• Post-Trading/Post-Investing
• Asset Servicing

ISSUANCE

This is the preliminary stage when the private limited company decides to go public by offering shares to them. It is usually done through an IPO (Initial Public Offering). The other means of issuing the shares are Follow-on Public Offering, Rights Issue and Private Placements. Companies do so to raise funds and in turn, they provide the (part) ownership to the shareholders aka investors. After a series of PE/VC funding, companies usually go through an IPO to get the listing benefits and the funds for their business expansion.

PRE-TRADING/PRE-INVESTING

This is the stage where the investor decides whether to buy, hold, or sell the shares. Ideally, the decision should be made using fundamental and technical analysis rather than market sentiment. However, market sentiment influences more than the stock analysis in buying and selling the shares.

TRADING/INVESTING

In this stage, the investor makes the order and it is routed to the exchange through brokerage firms. When a buy and a sell match is found, the order will be executed. Stocks can be bought either in the primary market or in the secondary market. The primary market (read IPO) is one in which the company and the investors are involved. The secondary market is one in which only the investors are involved.

There are two major stock exchanges in India – NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). There is no major difference between the two and the investor can invest in any of these two exchanges, provided the stock is listed in that particular exchange. At times, you may find a company listed only in one exchange, though most of the companies are listed in both the exchanges.

POST-TRADING/POST-INVESTING

In this stage, the buyer gets the shares and the seller gets the money. The depository NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited) takes care of transferring the shares from the seller to the buyer in the demat (dematerialized) form. The clearing firm NSCCL (National Securities Clearing Corporation Limited) takes care of clearing and settlement of the trades between the buyer and seller.

ASSET SERVICING

The banks and financial institutions, typically the brokerage firms, provide asset services to the investors. These services include but not limited to dividends payout, handling corporate actions like a stock split, rights, and bonus issue, sending the company’s financial statements (P&L statement, cash flow statement, and balance sheet), e-Voting details to the investors on a regular basis.

Though equity investment is good for wealth generation, one should be cautious of the risks associated with it. In equity, there are no guaranteed returns, unlike the traditional investment options. The reward and risk always go hand in hand. So, the higher the expected return, the higher the risk. But, the converse need not be true. i.e., higher the risk, higher the returns is not necessarily true.

Happy Trading!! Happy Investing!!